Did green debt instruments aid diversification during the COVID-19 pandemic?

Faced with a persistent pandemic, investors are concerned about portfolio diversification. While the literature on COVID-19 has evolved impressively, limited work remains on diversification opportunities. We contribute to the literature by exploring the volatility and co-movement of different sovereign debt instruments, including green sukuk, sukuk, bond and Islamic and conventional equity indices for Indonesia. Our results consistently point towards increased asset co-movement and weak profitability during the pandemic. Interestingly, sukuk and green sukuk have a 14% correlation with stocks, suggesting potential diversification prospects in times of extreme shocks.

Automated summary

This study examines the volatility and co-movement of different sovereign debt instruments in Indonesia during the pandemic. The results indicate increased asset co-movement and weak profitability during this period. Interestingly, sukuk and green sukuk show a 14% correlation with stocks, suggesting potential diversification prospects in times of extreme shocks.